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What Local Governments Can Do:

Affordable Housing Tools and Resources

August 16, 2006 |
Great Lakes Bulletin News Service

Local governments can do a great deal to encourage and facilitate the construction of more affordable housing within their borders. Following is a list of ordinances and financial tools that communities around the country are using to tackle the affordable housing challenge.

Mandatory Inclusionary Zoning
A community may amend its zoning code to officially require that a certain percentage of units be priced affordably in all new developments. The community rewards the developer with density bonuses, expedited permit processes, relaxed design standards, reduced parking requirements, and waivers of certain municipal fees.

For example, in Montgomery County, Md., a “Moderately Priced Dwelling Unit Program” requires every new subdivision or development with 35 or more units to price between 12.5 and 15 percent of its units affordably. The affordable units are targeted to households making 65 percent or less of the area mean income, with priority given to people who live or work within the county

Voluntary Inclusionary Zoning
In many instances, a community will use the presence of an informal policy or a voluntary program to aggressively negotiate with developers for the creation of some affordable homes or apartments within market-rate developments. As with mandatory programs, benefits to the developer may include density bonuses, expedited permit processes, relaxed design standards, reduced parking requirements, and waivers of certain municipal fees. Government representatives negotiate directly with developers using these incentives.

Property Tax Incentives
Special property tax assessment levels and property tax abatements are tools that municipalities may use to provide incentives to developers to create or preserve affordable housing. Municipalities may implement tax abatement programs to encourage affordable housing development either by providing a rebate to affordable housing owners, or by abating the tax liability at the time of collection under the state property tax code.

Community Land Trusts
These trusts provide a way for municipalities to ensure that affordable housing remains a community resource for the long term. Trusts maintain affordability by separating ownership of the land from the homes built upon it. Typically, non-profit corporations administer community land trusts. The trusts may develop new housing themselves through a community development corporation or may simply hold the land beneath housing produced by a private or government developer.

Mutual Housing Cooperatives
Limited equity co-ops limit the resale value of shares. The maximum resale value is predetermined by a formula established in the cooperative's bylaws. Generally targeted at low- and moderate-income people, the purpose of limited-equity cooperatives is to prevent speculation, encourage long-term residency, and preserve the "affordable" character of the co-op for a wide variety of future residents.

Public–Private Partnerships
Creative public-private partnerships rely on the innovation and commitment of public and private sector entities to build affordable housing. In most cases, these partnerships draw upon the respective assets and abilities of the public, private, and not-for-profit sectors to ensure that at least some of the housing in a particular development can be sold or rented affordably.

For example, the Salem Housing Community Development Corporation obtained funding from HOME, an affordable housing nonprofit, through the Genesee County Metropolitan Planning Commission, to purchase and rehabilitate six vacant homes for resale to low- to moderate-income families in Mt. Morris Township. The homes to be rehabilitated were donated by the Genesee County Land Bank.

Housing Trust Funds
Similar to bank accounts, these funds may receive and distribute dedicated sources of public money to develop, rehabilitate, or preserve affordable housing units. Sources of the funds vary widely, as do the types of projects they support and how the funds are administered. This flexibility is one of the key benefits of housing trust funds, because it allows communities to custom fit the fund to their particular strengths, needs, and priorities with minimal administrative burden.

Demolition Taxes
These taxes generate revenue when existing residential structures are torn down. They can help offset the negative effects teardowns have on a community. When buyers demolish an existing house, replace it with a much larger new house, then sell the new residence for a significant profit, the new structures often do not match the scale, appearance, and character of the surrounding neighborhood.

Tax-Increment Financing Districts
So-called TIF funding dedicates new property tax revenue that arises when a rundown area undergoes significant new public or private development that increases its taxable value. These new revenues, also called increments, are used to help finance some or all of the improvements that raised the area’s value. State law provides guidelines that allow for establishing TIF districts.

Commercial Linkage Fees
Commercial development can increase housing costs by driving up demand for moderately priced homes for workers who will be employed in the new development. Usually, the local government imposes a fee on the new commercial property and uses the funds to support an affordable housing initiative. This program helps correct the imbalance between jobs and housing that arises when there is insufficient housing for workers who want to live close to their jobs.

Location Efficient Mortgages
A Location Efficient Mortgage® increases the amount of money homebuyers in urban areas are able to borrow by treating as additional income the money they will save by living in walkable neighborhoods with public transit, thereby driving less frequently. The program encourages the development of efficient communities, and reduces urban sprawl and auto dependence.

A household earning $50,000 a year, for example, can qualify for a $163,000 mortgage under current lending practices; in today's housing market that may not be enough to buy a large enough home. But in compact, transit-accessible, and pedestrian-friendly neighborhoods, if a household can save $200 per month on transportation over their suburban counterparts by driving less, a location efficient mortgage would qualify the applicant for a $213,000 home.

Regional Fair-Share Housing:
Regional fair-share housing plans disperse low- and moderate-income housing to a number of communities, instead of allowing it to concentrate in just one area. Regional “Fair Share” agreements ensure that local governments contribute to affordable housing costs to meet the overall metropolitan demand.

Additional Affordable Housing Resources:
U.S. Department of Housing and Urban Development’s Office of Community Planning and Development Web site has many resources on affordable housing as well as excellent explanations of many federal programs.

The Fannie Mae Foundation has developed an affordable housing and community development resource for professionals, dubbed KnowledgePlex. The site includes fact sheets and articles speaking to many different topics and tools surrounding affordable housing.

The Michigan Local Initiatives Support Corporation channels grants and loans to community development corporations in order to develop housing and businesses, perform essential neighborhood services, and assemble whole communities from the individual energies of residents, entrepreneurs, volunteers and government agencies.

The Affordable Housing Design Advisor brings together experience and ideas from successful affordable housing projects all over the country, and the people who developed, designed and built them.

Nate Scramlin interned at the Michigan Land Use Institute in early 2006, while completing his studies at Michigan State University.

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